The Biden-Harris administration's claims of strong job growth may be unraveling as new data suggests employment gains were far weaker than reported—potentially up to a million jobs off—raising fresh concerns about the Federal Reserve's next move on interest rates.
The Biden-Harris administration has often pointed to robust job growth as a key achievement, but new data suggests that employment gains over the past year may have been significantly overstated. Preliminary benchmark revisions due from the government on Wednesday could reveal that job growth in the year through March 2024 was as much as 600,000 to 1 million jobs weaker than originally estimated, according to economists from Goldman Sachs and Wells Fargo.
The revisions are expected to show a monthly shortfall of around 50,000 jobs, with some estimates pointing to an even steeper decline. JPMorgan Chase forecasters predict a downward adjustment of 360,000 jobs, while Goldman Sachs suggests the final number could be as high as one million. If the revision exceeds 501,000, it would mark the largest downward correction in 15 years.
These revisions could suggest that the labor market has been cooling for longer than previously thought, adding a new dimension to the Federal Reserve’s strategy as it contemplates lowering interest rates. With Fed Chair Jerome Powell set to speak at the annual Jackson Hole symposium in Wyoming later this week, the latest data will likely influence his tone regarding the central bank’s plans for rate cuts.
Wells Fargo economists Sarah House and Aubrey Woessner commented, “A large negative revision would indicate that the strength of hiring was already fading before this past April,” which would amplify concerns about the Fed’s ability to maintain full employment amid weakening labor market data.
The Bureau of Labor Statistics (BLS) conducts annual benchmarks to adjust payroll data based on more accurate, though less timely, figures from the Quarterly Census of Employment and Wages (QCEW). The upcoming revision follows the release of QCEW data in June, which hinted at slower job growth in 2023. The current BLS figures suggest the economy added 2.9 million jobs over the 12 months ending in March, but if revisions shave off a million jobs, average monthly gains would dip to 158,000—still solid but far below the post-pandemic surge.
Despite potential concerns, some analysts, like Omair Sharif of Inflation Insights LLC, remain optimistic that the revisions will be on the lower end of estimates. However, recent labor market indicators have shown signs of slowing. Hiring was significantly scaled back in July, and the unemployment rate has risen for four consecutive months. While this initially spooked global markets, which lost $6.4 trillion in value, the S&P 500 has since rebounded.
“Markets are watching Wednesday’s data closely to see if their earlier fears that the Fed is behind the curve were justified,” said Quincy Krosby, chief global strategist at LPL Financial. Although other indicators have reassured investors that the labor market remains strong, many expect the Fed to begin cutting interest rates in September.
Powell and his colleagues have emphasized that they are paying close attention to labor market data, and Friday’s speech will likely reflect the impact of these revisions. Evercore ISI analysts Krishna Guha and Marco Casiraghi noted that “while anticipated, these revisions will frame the atmospherics” of the labor market, indicating that job growth may not have been as vigorous as previously believed.
Final revisions will be incorporated into the BLS’s January employment report, scheduled for release in February 2024. The divergence between monthly payroll data and QCEW figures in recent years has raised concerns, with some economists blaming adjustments like the BLS’s birth-death model for overstating job gains, particularly in the post-pandemic economy.
Goldman Sachs economist Ronnie Walker warns that the QCEW revisions may overstate the slowdown, as they exclude unauthorized immigrants, who have played a significant role in job growth. “Since the QCEW is based on unemployment insurance records, it likely largely excludes unauthorized immigrants, who we believe have contributed strongly to employment growth over the last couple of years,” Walker wrote.
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